Tax Benefits to Owning a Home

Tax Benefits to Owning a Home

There’s certainly no better place than home and even more so when it comes to tax time each year. Below are 8 financial advantages to owning a home.

1. You build equity in your home each month.

Equity in a home is the amount of money you can sell your home minus what you still owe on your mortgage. Every time you make a mortgage payment, a portion of that goes toward paying down your principal. The way mortgages work is that the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. The reduction in your mortgage each month, increases the equity in your home!

2. Homeownership can increase your wealth.

Buying a home can be a very savvy move and great financial investment, only when you purchase a home you can afford. In 2015, the idea of sticking to a home you can afford to gradually build wealth is a “rule” that just happens to be new and old at the same time.

3. Tax deduction benefits.
There are a few tax deductions that can help alleviate some of the tax burdens which may be associated with owning a home. Below are just a few deductions you should be taking.

Mortgage deduction: Homeowners can deduct the interest they pay, since often times interest is the largest component in their payment.
Property tax: Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.
Closing costs (when applicable): Homebuyers may pay origination fees that are charged by the lender when you apply for your home loan. The first year you purchase your home, you may deduct these fees, regardless if the origination fee was paid by you or the lender. The savings can be high since origination fees may be 1%, or higher!
To find out what your tax savings are after you purchase your home, use this handy mortgage calculator to find out your deductions and your savings!

4. Home Equity Lines are deductible.
In addition to your mortgage interest, you may also deduct your equity lines of credit. This allows you to shift your credit card debts to your home equity loan, pay a lower interest rate than the credit card interest rates, and get a deduction on the interest as well.

5. Buying is cheaper than renting.
Although the cost of renting may be cheaper the first year you own your home, over time, the interest you pay will eventually decrease and be lower than the rent you would have been paying. More importantly, you are actually building equity in a home you own and not spending all of your hard earned money on rent. So, instead of paying off your landlord’s home or building, you can pay off your own!

6. Receive a capital gains exclusion.
If you buy a home to live in as your primary residence for more than two years then you will qualify. When you sell, you can keep profits up to $250,000 if you are single, or $500,000 if you are married, and not owe any capital gains taxes. If you purchased your home anytime prior to 2003, chances are it has appreciated in value and this tax benefit will come in very handy.

7. A mortgage is similar to a savings account.
By making monthly payments on your mortgage, you are paying the principal balance down and building more and more equity in your home. In a sense, you are forced to save this money in a separate account, and when it’s time to sell your home, this equity becomes yours.

8. Unforseen circumstances.
A partial exclusion can be claimed if the sale was prompted by residential damage from a natural or man-made disaster or the property was “involuntarily converted,” for example, taken by a local government under eminent domain law. This may include:

  • Death
  • Divorce or separation
  • Job loss that qualifies for unemployment
  • Employment changes that makes it difficult to make monthly payments and basic living expenses
  • Multiple births from same pregnancy

To find out if you qualify, please consult one of our team members.

Buying a home in order to build equity is one of the main financial reasons buyers jump into the market. As we have seen above, there are quite a few advantages to owning a home. That is why many homeowners who have taken out a mortgage in order to buy do so in anticipation of the tax breaks that come with homeownership. Depending on your tax bracket, a first-time purchaser’s 1040 tax deductions can heavily subsidize many of the expenses you have poured into your new home.

While a home is a good investment, it’s best to weigh the pros and cons of both buying and renting, and how cost effective these will be. Along with the joy of painting, plumbing and yard work, you now have some new tax considerations when purchasing a home.

If you are thinking about purchasing a new home, resale, or investment property, it’s important that you get pre-qualified before you start the home buying search.

Gary Welch and Jeff Morris are Atlanta mortgage bankers who are able to help you choose a mortgage solution that combines the right down payment, monthly payment and tax benefit for your needs. More information pertaining to industry related news can be found on our blog at